KHARTOUM, Jan 4 (Reuters) - The leaders of Sudan and South Sudan meet on Friday to make another attempt to defuse hostilities after their countries split and restart cross-border oil flows to throw their beleaguered economies a lifeline.

Sudan's Omar Hassan al-Bashir and South Sudan's Salva Kiir have both signalled possible concessions at the talks in Addis Ababa to end a stalemate over how to set up a demilitarised buffer zone after the countries came close to war in April.

They signed agreements at a meeting in the Ethiopian capital in September to resume oil exports and secure the volatile border, but sharing deep mistrust after fighting one of Africa's longest civil wars, neither country has implemented the deals.

Both countries badly need the oil exports, for which Juba has to pay Khartoum millions of dollars. But analysts say they also need the confrontation with the other side to shore up domestic legitimacy and divert attention from their crumbling economies and widespread corruption.

The African Union, backed by Western powers, urged them to hold Friday's talks to try again to reach a deal.

Sudan's state news agency SUNA said late on Thursday Bashir would meet Kiir to discuss "speeding up" implementing the September deals. Kiir said in a speech on New Year's Eve the South was ready to withdraw its troops.

But diplomats remain sceptical of a quick breakthrough because both countries have a history of signing and then not implementing the agreements.

Since April's flare up, the worst violence since South Sudan seceded in 2011 after a 2005 peace deal ending the civil war, they have pulled back their armies from the almost 2,000 km (1,200 miles) border, much of which is disputed.

Both sides say such a buffer zone is necessary before oil from the landlocked South can flow through Sudanese territory. Juba shut down its entire output of 350,000 barrels a year ago after failing to agree on an export fee.

TRADING ACCUSATIONS

They agreed in September not just to set up the buffer zone and restart oil exports but also to open the border for trade and start a monetary cooperation - none of which saw the light of day.

South Sudan's oil minister, Stephen Dhieu Dau, said on Wednesday it would delay resuming oil exports until at least mid-March even if Juba solves all security conflicts with Sudan at the summit - the such first forecast since November.

South Sudan accused Sudan on Thursday of launching air strikes on the southern side of their border on Wednesday, wounding several civilians. Sudan's armed forces were not immediately available for comment but have regularly denied southern accusations of attacks in the past.

In turn, Sudan accuses South Sudan of supporting rebels of the Sudan People's Liberation Movement-North (SPLM-North) in two border states. Juba denies the accusation and says Sudan is backing militias on its territory.

The enmity remains deep and diplomats say both sides tend see such summits, the latest in a series of bilateral talks, more as a way of focusing on the other's weaknesses, rather than primarily as a way to solve their conflicts.

In Sudan, some officials think, diplomats say, Kiir has made a grave mistake by shutting down the oil production, depriving state coffers of 98 percent of revenues, with some saying South Sudan's leadership might soon run out of money.

In Juba, many officials believe that Bashir's government might collapse due to popular dissent over spiralling inflation and cracks inside his ruling circles. The government said in November it had uncovered a plot attempt against Bashir.

Faced with such mutual mistrust, the African Union will try at the summit to get some sort of border security agreement under way to help restart the oil flows.

Once that happens, the hope among diplomats is that both have an incentive to keep talking and sort out their remaining conflicts such as the final status of Abyei and other disputed border regions.

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